How to Tax Our Way Back to Justice

[ZiprHead]

It is absurd that the working class is now paying higher tax rates than the richest people in America.

America’s soaring inequality has a new engine: its regressive tax system. Over the past half century, even as their wealth rose to previously unseen heights, the richest Americans watched their tax rates collapse. For the working classes over the same period, as wages stagnated, work conditions deteriorated and debts ballooned, tax rates increased.

 

[Trausti]

Can someone walk us through how increased taxes on those who already pay the most taxes will affect income inequality. Is the idea that you tear everyone down to the lowest common denominator?

 

[PyramidHead]

Can someone walk us through how increased taxes on those who already pay the most taxes will affect income inequality. Is the idea that you tear everyone down to the lowest common denominator?

Someone can certainly walk you through that, yes:

 

[Gun Nut]

Can someone walk us through how increased taxes on those who already pay the most taxes will affect income inequality. Is the idea that you tear everyone down to the lowest common denominator?

Your confusion may be with the difference between tax rates and tax amount.
Tax rates are the proportion of money received that you pay in taxes, versus what you keep for yourself.
Tax amount is the quantity of money that you pay out in tax.

If there were a fixed tax rate of, lets say, 15%, then the person bringing in $50,000 per year would have to pay $7,500 in taxes (leaving them with $42,500 for the year). The person bringing in $2,000,000 per year would have to pay $300,000 in taxes (leaving them with $1.7 Million for the year).

The person making more money has more tax amount to pay than the person that makes less money.

Is that clearer now?

 

[PyramidHead]

Also, the proportion paid in taxes should somewhat track the share of society's wealth, don't you think? For example, even if people at the top pay more taxes than people on the bottom, they also have like 90% of the wealth and don't pay anywhere near that fraction of the taxes.

 

[James Brown]

Let's not forget progressive vs. regressive taxes.

The Federal Income tax is progressive--the more you earn, the higher the rate you pay. Meanwhile, payroll taxes are regressive. The more you earn, the lower the rate you pay. Sales taxes are also regressive, since lower-income citizens spend a higher percentage of their incomes on purchases that are taxed at the register than higher-income citizens.

In a perfect world, progressive and regressive taxes should be balanced, with everyone paying their share. But in this world, the wealthy use their money to influence lawmakers to lower the progressive taxes while leaving regressive taxes largely alone.

So in 2018, rich Americans pay a combined effective tax rate of 23 percent, while poor Americans pay about 25 percent. Republicans keep telling me that this is perfectly fair and reasonable.



The Rich Really Do Pay Lower Taxes Than You

 

[T.G.G. Moogly]

Also, the proportion paid in taxes should somewhat track the share of society's wealth, don't you think? For example, even if people at the top pay more taxes than people on the bottom, they also have like 90% of the wealth and don't pay anywhere near that fraction of the taxes.

The system is simply corrupt. The rich make the rules. Average, working grunt joe isn't informed enough to be interested so don't look for anything to change. The american dream is to accumulate lots of wealth so you don't have to pay lots of taxes.

 

[RVonse]

Can someone walk us through how increased taxes on those who already pay the most taxes will affect income inequality. Is the idea that you tear everyone down to the lowest common denominator?

The trick is not to destroy incentive but to change where the rich park their wealth.

Currently all the rich do now is buy back stock for personal gain. Whats needed are tax breaks to startup new battery technologies, infrastructure projects for the common good, and job creation. Tax these activities much less.

And then massive taxation on financial buybacks, mergers, automated stock trading, and other hedge fund activities that serve absolutely no benefit to society in general. Its really not that complicated. But how to get there from here will sadly require some kind of revolution (hopefully peaceful) at this point.

 

[Gun Nut]

Let's not forget progressive vs. regressive taxes.

The Federal Income tax is progressive--the more you earn, the higher the rate you pay. Meanwhile, payroll taxes are regressive. The more you earn, the lower the rate you pay. Sales taxes are also regressive, since lower-income citizens spend a higher percentage of their incomes on purchases that are taxed at the register than higher-income citizens.

In a perfect world, progressive and regressive taxes should be balanced, with everyone paying their share. But in this world, the wealthy use their money to influence lawmakers to lower the progressive taxes while leaving regressive taxes largely alone.

So in 2018, rich Americans pay a combined effective tax rate of 23 percent, while poor Americans pay about 25 percent. Republicans keep telling me that this is perfectly fair and reasonable.

So plugging that back into my example... the $50k earner pays 25%, or $12,500. The $2M earner pays 23%, or $460,000.
In what universe is $12,500 more than $460,000??????

There is an expression... "letting the tax tail wag the dog"... it means something like, "it's pretty fucking stupid to not want a million dollars because you will end up having to pay a few hundred thousand out of it in tax."

 

[fromderinside]

Let's not forget progressive vs. regressive taxes.

The Federal Income tax is progressive--the more you earn, the higher the rate you pay. Meanwhile, payroll taxes are regressive. The more you earn, the lower the rate you pay. Sales taxes are also regressive, since lower-income citizens spend a higher percentage of their incomes on purchases that are taxed at the register than higher-income citizens.

In a perfect world, progressive and regressive taxes should be balanced, with everyone paying their share. But in this world, the wealthy use their money to influence lawmakers to lower the progressive taxes while leaving regressive taxes largely alone.

So in 2018, rich Americans pay a combined effective tax rate of 23 percent, while poor Americans pay about 25 percent. Republicans keep telling me that this is perfectly fair and reasonable.

So plugging that back into my example... the $50k earner pays 25%, or $12,500. The $2M earner pays 23%, or $460,000.
In what universe is $12,500 more than $460,000??????

There is an expression... "letting the tax tail wag the dog"... it means something like, "it's pretty fucking stupid to not want a million dollars because you will end up having to pay a few hundred thousand out of it in tax."

I'd suggest the cost to live a modest life be factored in before we get down to dollars left in hands of people after taxes. Example income 50k, modest life cost 45k minimum margin 3k correct tax 2k fed-stat-local. Income 100k modest life cost 75k minimum margin 15k correct tax 10k. Income 500k good life cost 300k minimum margin 100k correct tax 100k income 2M good life cost 1M, minimum margin 300k correct tax 700K.

Notice life cost quality and minimum margin go up within come, However when one gets to about 50M income where great life is about 15-20M and margin goes to about 15M as well taxes goto about 20M or 40% of income. beyond this level tax rates increase rapidly as much wealth is gained each year to bring some of that , let's call it excess income gets returned to pay for what they explointed to from society to get that income.

We can argue that exploit isn't the right word. OK let me call it social penalty for excess income due to problems with tax and regulation failures. social system that permit gains from a society that are tens or hundreds of times what the average citizen realizes need to be corrected. Failure to make such corrections by society results in societies becoming hostage to those who have great sums of money. Instead of persons it becomes dollars or shekels that determine how laws are written.

 

[Loren Pechtel]

Can someone walk us through how increased taxes on those who already pay the most taxes will affect income inequality. Is the idea that you tear everyone down to the lowest common denominator?

The trick is not to destroy incentive but to change where the rich park their wealth.

Currently all the rich do now is buy back stock for personal gain. Whats needed are tax breaks to startup new battery technologies, infrastructure projects for the common good, and job creation. Tax these activities much less.

And then massive taxation on financial buybacks, mergers, automated stock trading, and other hedge fund activities that serve absolutely no benefit to society in general. Its really not that complicated. But how to get there from here will sadly require some kind of revolution (hopefully peaceful) at this point.

One simple rule change would be of help:

A company with debt (beyond that of the normal billing cycle) is not permitted to buy it's own shares other than as necessary to meet obligations.

 

[Loren Pechtel]

Let's not forget progressive vs. regressive taxes.

The Federal Income tax is progressive--the more you earn, the higher the rate you pay. Meanwhile, payroll taxes are regressive. The more you earn, the lower the rate you pay. Sales taxes are also regressive, since lower-income citizens spend a higher percentage of their incomes on purchases that are taxed at the register than higher-income citizens.

In a perfect world, progressive and regressive taxes should be balanced, with everyone paying their share. But in this world, the wealthy use their money to influence lawmakers to lower the progressive taxes while leaving regressive taxes largely alone.

So in 2018, rich Americans pay a combined effective tax rate of 23 percent, while poor Americans pay about 25 percent. Republicans keep telling me that this is perfectly fair and reasonable.

So plugging that back into my example... the $50k earner pays 25%, or $12,500. The $2M earner pays 23%, or $460,000.
In what universe is $12,500 more than $460,000??????

There is an expression... "letting the tax tail wag the dog"... it means something like, "it's pretty fucking stupid to not want a million dollars because you will end up having to pay a few hundred thousand out of it in tax."

The last two segments of his chart are not how society should be operating.

 

[Derec]

So let's look at the details of the argument. Here is the tax breakdown from the article.



Two things that jump out:

- high percentage of tax burden for bottom 50% (but esp. bottom 20%) are two categories - consumption taxes (which are local and can be saved on by curbing spending by for example not buying that new iPhone or $150 Nikes when you make only $20k/a) and so-called payroll taxes. Consumption taxes are local, not federal and thus can't be controlled by the federal government and neither is the federal government funded by them. A rich person will also pay more in consumption taxes than a poor person, but it will obviously be a smaller percentage of their total tax burden because they pay more in other taxes. Payroll taxes, while federal, are not general taxes in that they do not fund the general budget - they are payments into Social Security retirement, disability and medical programs. People paying into them do so in order to have income and healthcare in the old age or in case of disability. Leaves the federal income tax that funds most of the federal government, but which the bottom 50% pay relatively little of. Vast majority of the 47% that infamously (MITT ROMNEY 2020!) pay no effective federal income tax come from the bottom 50%.
One thing is not clear to me about bottom 10% or 20% and property taxes. How do people making so little owe any appreciable taxes? Cut-off for bottom 10% is ~15k. There is mo way that that income group owes so much real property to make up a significant portion of the total. Vast majority of that cohort are renters, often with room-mates. Is the author counting property taxes paid by their landlords in his calculation? That would make it dishonest in my view. And while a smaller bar, what about commercial property tax? That many sub-$15k making business owners paying corporate property taxes? Hmm.

That is not to say that there should not be changes made to the tax system, but I think the author was not exactly honest when he threw all these taxes together as if they were equivalent.

Oh and another thing. Payroll tax in the US is 6.2% paid by employees and 6.2 by employers. Is the author dishonestly counting employer contributions as well? Because I can't imagine vast majority of low-income people getting all their income as independent contractors (that pay full 12.4%, but can reduce taxable income by deducting expenses).

 

[Derec]

The Federal Income tax is progressive--the more you earn, the higher the rate you pay.

To a point. The reason the income tax bar gets smaller for upper-level 1%ers and especially for the billionaires (top 400) is that an increasing portion of their income comes from capital gains which is taxed at a much lower rate than wages and salaries.
That said, low income individuals pay very little federal income tax, meaning that they contribute almost nothing to running of the federal government.

Meanwhile, payroll taxes are regressive. The more you earn, the lower the rate you pay.

Payroll tax is flat with a ceiling on income subject to it, which makes it effectively regressive. However, payroll taxes are not really taxes in the usual sense. They are really mandatory contributions to Social Security insurance, so they really should not be lumped in with the rest.

Sales taxes are also regressive, since lower-income citizens spend a higher percentage of their incomes on purchases that are taxed at the register than higher-income citizens.

That's really stretching the meaning of "regressive". I don't know about other states, but in Georgia, food is taxed at a lower rate than other goods and services. Tobacco and alcohol are taxed at much higher "sin tax" rates, and those are not necessities - if you are in the bottom 10% you have no business wasting money on those. Many low-income people live beyond their means which leads to overspending on consumption taxes. Does somebody like that really need a new iPhone or $150 Nikes? Or eating out all the time (restaurant food is not subject to lower tax rates).

In a perfect world, progressive and regressive taxes should be balanced, with everyone paying their share. But in this world, the wealthy use their money to influence lawmakers to lower the progressive taxes while leaving regressive taxes largely alone.

You are forgetting all the benefits lower-income people receive such as food stamps and also sales taxes are state and local and have nothing to do with the federal government.

So in 2018, rich Americans pay a combined effective tax rate of 23 percent, while poor Americans pay about 25 percent. Republicans keep telling me that this is perfectly fair and reasonable.

Merely rich Americans pay ~28%-33%. It is the über-wealthy that pay ~23%. That said, there is some "frauding" going on with the chart given that payroll taxes and not comparable with "real" taxes as they are really compulsory insurance contributions and too few bottom 20% own real estate to pay property taxes to make that yellow bar as big as they made it.

 

[Loren Pechtel]

- high percentage of tax burden for bottom 50% (but esp. bottom 20%) are two categories - consumption taxes (which are local and can be saved on by curbing spending by for example not buying that new iPhone or $150 Nikes when you make only $20k/a) and so-called payroll taxes.

One thing jumps out at me--that very high consumption tax rate for the lowest income bracket. I'm not aware of any place with a normal consumption tax rate that high. Are these normal consumption taxes or sin taxes?

Consumption taxes are local, not federal and thus can't be controlled by the federal government and neither is the federal government funded by them. A rich person will also pay more in consumption taxes than a poor person, but it will obviously be a smaller percentage of their total tax burden because they pay more in other taxes. Payroll taxes, while federal, are not general taxes in that they do not fund the general budget - they are payments into Social Security retirement, disability and medical programs. People paying into them do so in order to have income and healthcare in the old age or in case of disability. Leaves the federal income tax that funds most of the federal government, but which the bottom 50% pay relatively little of. Vast majority of the 47% that infamously (MITT ROMNEY 2020!) pay no effective federal income tax come from the bottom 50%.

I'd like to see what the EITC does to the lower brackets.

One thing is not clear to me about bottom 10% or 20% and property taxes. How do people making so little owe any appreciable taxes? Cut-off for bottom 10% is ~15k. There is mo way that that income group owes so much real property to make up a significant portion of the total. Vast majority of that cohort are renters, often with room-mates. Is the author counting property taxes paid by their landlords in his calculation? That would make it dishonest in my view. And while a smaller bar, what about commercial property tax? That many sub-$15k making business owners paying corporate property taxes? Hmm.

I'm wondering if the income includes social security or not.

That is not to say that there should not be changes made to the tax system, but I think the author was not exactly honest when he threw all these taxes together as if they were equivalent.

Oh and another thing. Payroll tax in the US is 6.2% paid by employees and 6.2 by employers. Is the author dishonestly counting employer contributions as well? Because I can't imagine vast majority of low-income people getting all their income as independent contractors (that pay full 12.4%, but can reduce taxable income by deducting expenses).

I think the author is figuring property tax and payroll tax as being passed through.

 

[RVonse]

So let's look at the details of the argument. Here is the tax breakdown from the article.
View attachment 24398
View attachment 24399

Two things that jump out:

- high percentage of tax burden for bottom 50% (but esp. bottom 20%) are two categories - consumption taxes (which are local and can be saved on by curbing spending by for example not buying that new iPhone or $150 Nikes when you make only $20k/a) and so-called payroll taxes. Consumption taxes are local, not federal and thus can't be controlled by the federal government and neither is the federal government funded by them. A rich person will also pay more in consumption taxes than a poor person, but it will obviously be a smaller percentage of their total tax burden because they pay more in other taxes. Payroll taxes, while federal, are not general taxes in that they do not fund the general budget - they are payments into Social Security retirement, disability and medical programs. People paying into them do so in order to have income and healthcare in the old age or in case of disability. Leaves the federal income tax that funds most of the federal government, but which the bottom 50% pay relatively little of. Vast majority of the 47% that infamously (MITT ROMNEY 2020!) pay no effective federal income tax come from the bottom 50%.
One thing is not clear to me about bottom 10% or 20% and property taxes. How do people making so little owe any appreciable taxes? Cut-off for bottom 10% is ~15k. There is mo way that that income group owes so much real property to make up a significant portion of the total. Vast majority of that cohort are renters, often with room-mates. Is the author counting property taxes paid by their landlords in his calculation? That would make it dishonest in my view. And while a smaller bar, what about commercial property tax? That many sub-$15k making business owners paying corporate property taxes? Hmm.

That is not to say that there should not be changes made to the tax system, but I think the author was not exactly honest when he threw all these taxes together as if they were equivalent.

Oh and another thing. Payroll tax in the US is 6.2% paid by employees and 6.2 by employers. Is the author dishonestly counting employer contributions as well? Because I can't imagine vast majority of low-income people getting all their income as independent contractors (that pay full 12.4%, but can reduce taxable income by deducting expenses).

Why is it dishonest to include property tax in with a rent payment? The tax is very significant to the landlord and as such is immediately passed on to the consumer the same way gas taxes and other sales taxes are passed to the end purchaser.

Nor is it wrong to say that the employer remittances of FICA are paid by the employee. Because it is more than fair to say that employee wages could and would be increased the same amount had the tax not been removed from the firms profits in the first place.

 

[Harry Bosch]

Also, the proportion paid in taxes should somewhat track the share of society's wealth, don't you think? For example, even if people at the top pay more taxes than people on the bottom, they also have like 90% of the wealth and don't pay anywhere near that fraction of the taxes.

No, I don't think. Wealth doesn't equal cash flow. We should tax cash flow at the federal level. The constitution allows a federal income tax. States are allowed to tax wealth if they want to.

 

[Derec]

One thing jumps out at me--that very high consumption tax rate for the lowest income bracket. I'm not aware of any place with a normal consumption tax rate that high. Are these normal consumption taxes or sin taxes?

I think it's supposed to be a combination of all of them, but like with payroll tax and property tax I suspect shenanigans by the author. Good catch!
This is a table of state and local sales taxes. As you said, much lower than the stated 12.3% for the bottom decile. And I know Georgia has a lower tax rate on food, and poor spend (or at least should spend) a more significant portion of their income on food, so that percentage is surprisingly high.

I'd like to see what the EITC does to the lower brackets.

Without children, it's peanuts, but with children it can be substantial. EITC is really a second child tax credit in disguise.
I don't know how the author counted the EITC and child tax credit, but it really should have reduced the income tax bar and be counted as "negative tax" if it makes net federal income taxes negative, even if that is difficult to express on a bar graph.

I think the author is figuring property tax and payroll tax as being passed through.

But that is not how tax burden is normally calculated, so it's dishonest. It's clear he chose the numbers in service of his thesis, that the top 400 pay the least percentage of their income as taxes.

 

[Derec]

Why is it dishonest to include property tax in with a rent payment?

Because it is paid by the landlord, not the renter. Thus it artificially inflates the tax burden to get the number the author wants to get.

The tax is very significant to the landlord and as such is immediately passed on to the consumer the same way gas taxes and other sales taxes are passed to the end purchaser.

When I buy a car, should I be listed as having paid some commercial property taxes rather than the owner of the dealership? What if I buy groceries at Publix? How is that different than buying a service like housing?

Nor is it wrong to say that the employer remittances of FICA are paid by the employee. Because it is more than fair to say that employee wages could and would be increased the same amount had the tax not been removed from the firms profits in the first place.

Could and would is not the same as is.
But IF you think employer portion of payroll tax should count toward the employee tax burden, then the income should also be adjusted by that amount, right? I somehow doubt the author did that, because, again, he has an agenda.

 

[Loren Pechtel]

I think it's supposed to be a combination of all of them, but like with payroll tax and property tax I suspect shenanigans by the author. Good catch!
This is a table of state and local sales taxes. As you said, much lower than the stated 12.3% for the bottom decile. And I know Georgia has a lower tax rate on food, and poor spend (or at least should spend) a more significant portion of their income on food, so that percentage is surprisingly high.


Without children, it's peanuts, but with children it can be substantial. EITC is really a second child tax credit in disguise.
I don't know how the author counted the EITC and child tax credit, but it really should have reduced the income tax bar and be counted as "negative tax" if it makes net federal income taxes negative, even if that is difficult to express on a bar graph.

I think the author is figuring property tax and payroll tax as being passed through.

But that is not how tax burden is normally calculated, so it's dishonest. It's clear he chose the numbers in service of his thesis, that the top 400 pay the least percentage of their income as taxes.

I don't mind considering the taxes as passed through. The rest of it does spell shenanigans, though. We have seen this same pattern again and again from those arguing for redistributive economics.